Recolor help: grey jagged necklines?

I've never done a recolor before, and I'm using S4S for Mac, but I've run across a bit of a problem. I'm using Photoshop to add a logo onto the back of the spa day men's sweatshirt, but whenever I try to use it, the neckline is super pixelated and it gets this weird grayish border. The rest of the sweatshirt appears to be fine (with the exception of the really pixel-y logo, but I think that may be my fault...)

Am I not saving the PNG correctly or something? I don't understand how to fix it exactly, but I haven't seen anywhere on how to troubleshoot this and I feel like it's something super obvious :/